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Investing.com - Citi has upgraded Drax Group Plc. (LON:DRX) from Sell to Neutral and raised its price target to GBP6.82 from GBP5.29, citing improved cash generation prospects.
The upgrade reflects better cash generation at Drax Power and scaled-back capital expenditure across growth opportunities including BECCs, hydro, pellet, and battery projects, which Citi believes increases the likelihood of further share buybacks.
Citi noted that while it sees limited upside potential for the power generation company, ongoing cash returns should support the shares and reduce the risk of a valuation de-rating.
The integration of Contract for Difference (CfD) extension has pushed back the post-2027 earnings cliff to 2031, accounting for the majority of the 153 pence per share increase in Citi’s valuation.
The research firm indicated it would need to see a clearer equity story with a path to sustainable earnings beyond the 2030s before adopting a more constructive stance on Drax Group, as the company’s outlook currently relies on extracting value from the remaining Drax Power site with limited visibility on future investment opportunities.
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